As predicted, the Bank of England did not reduce interest rates yesterday. They are joining with Labour in trying to create a recession in the UK, which their combined message of gloom will undoubtedly create unless there are changes in policy very soon. You cannot deliver messages of the sort the Treasury and Bank are combining to send right now and not have this outcome when the economy is already fragile.
There was another reason for thinking this in yesterday's announcement. The Bank said in that announcement that:
The Committee voted unanimously to reduce the stock of UK government bond purchases held for monetary policy purposes, and financed by the issuance of central bank reserves, by £100 billion over the next 12 months, to a total of £558 billion.
In other words, the Bank will raise £100 billion from the City by way of offering new saving facilities to it, meaning that the funds in question will be removed from use in the commercial economy of the country, and then nothing will be done with that money. It will simply reduce the central bank reserve account balances.
£100 billion could be used to end child poverty.
It could fund a Green New Deal.
And the NHS.
And social care.
And a great deal else.
But no, it will instead be forcibly saved so that nothing might happen as a result of its withdrawal from use on the commercial economy of the country.
As a result, two consequences will follow. One is that there will be less commercial investment in the economy: the desire to advance money for that purpose will decline when there is reduced demand in the economy as a result of this money being withdrawn from use.
The other is that interest rates will remain well above required levels, meaning that the continued pressure on households and businesses will continue.
The Bank says that this move is necessary to beat inflation. Infaltion has, however, gone for now. So that is untrue. What is this about in that case? It can only be a measure to inflate rates to support banks whilst punishing everyone else with a recession that it looks as is the UK alone might suffer.
And Rachel Reeves is saying nothing about this, whilst Starmer is saying the budget will deliver growth. He's living in cloud cuckoo land if he thinks that likely when the Bank is pursuing policy like this.
Do any of these people have a clue what they are doing, let alone talking about?
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The UK is mainly a services economy. Services inflation is over 5%. Policy makers have to think about these things, beyond the headlines, and not just go off what they see on the home page of the sport.
Services is labour based
There is an infaltion lag with it as a result
So of course it is behind goods
They are wrong to thionk this an issue
They have not thought about it
“Do any of these people have a clue what they are doing, let alone talking about?”
Of course not.
When he was waiting to speak, he did not know what to say.
When speaking, he did know what he was saying.
When he sat down, he did not understand what he had said.
True
A service economy yes, using cheapest possible overseas workers and minimal UK-based staff.
Dreadful failure of labour to reform and re energise the country after fourteen years of Tory failure.
Getting bogged down in sleazy donations.
Etc.
What can we do about it? You and others have explained the truth repeatedly but Reeves, Starmer & Streeting are not listening to you, only to their donors. I’d rather we didn’t take to the streets – it wouldn’t help. But what else can we do? Anybody?
“Do any of these people have a clue what they are doing”
I guess if asked directly (I’m trying to be charitable) Reeves would deny that she/BoE was trying to engineer a recession or that she was trying to impose financial hardship on the economy. Any questioning by the Uk meeja (I’m not going to dignify them with the correct moniker) would stop at that point – Reeves would be allowed to get away with a flat denial. I’d suggest that this is the problem: Reeves is NEVER (‘ere we go again – broken record starts) forensically questioned. A flat denial (almost inevitable) could be followed up by lines of questioning that exposed what passed for her thinking: e.g. why does the “the stock of UK government bond purchases” need to be reduced by “£100 billion over the next 12 months, to a total of £558 billion”…………..given the pressing investment needs of the country – said needs being so large that it can ONLY be met by government etc etc.
Does not happen, won’t happen – LINO/Reeves would never expose themselves to this questioning – & the House of Punch & Judy is functionally incapable of holding ministers to account (not that the imbeciles on the opposition benches are functionally capable of even posing the right questions – the whole show, all the time, every time, is performative.
“performative” excellent adjective to describe to describe the current state of British politics.
“Performative acts or behaviour are intended to show how a person wants to be seen by others, rather than who they really are.”
More truth to be found watching children’s television!
Again, I argue – not too irritatingly I hope – that they do know what they are doing.
How it is done you see, does not matter. Because they are (wait for it!) ‘ experts’.
What matters to them is the output – the fascist creation of permanent crisis which they can manipulate on behalf of and to the benefit of their funders. It gives them the cover to say and do outrageous things.
And the blame game – whoever is flavour of the month – immigrants, boats, the disabled, the elderly – take your pick – all provide rich pickings to throw us off the scent as we are encouraged to fight among ourselves.
Appalling. I’m no fan of the Fed but they seem to be getting the picture – what does the BoE see that they don’t?
Indeed, fiscal policy in the US looks like it will be far looser than the UK.
With the release of consumer confidence data I suspect the BoE is already regretting its inaction.
And QT?? Frankly, irrelevant in the face of the ridiculous rate policy.
We agree 🙂
I love it when Richard and Clive agree – doesn’t everyone else?
“I’m no fan of the Fed but they seem to be getting the picture”
In the USA commercial and residential construction, Public, Private and Public-Private Partnerships, is beginning to slow down. Commercial and residential construction is a major component of the USA economy. This is one thing the Fed sees clearly.
There are reports that Reeves will find extra billions by ignoring QE/QT balances.
This must all be part of building up to a u-turn on the fiscal rule without seeming to.
So tedious.
“Orthodox economists know well where their own money comes from. It comes from their ability to endorse “free-market” policies and condemn government regulation. This premise has led their mathematical models to focus on how individuals can make money in our pecuniary society, but not how public entities can be better run.”
(from Michael Hudson: Finance as Warfare)
Thank you and well said.
More Hudson for you: https://michael-hudson.com/2024/09/debunking-u-s-bankruptcy-myths/.
Agreed.
Starmer’s approach seems to be:
-always blame the Tories,
-let the BoE continue to cause damage because the government can’t possibly interfere with its independence.
– let the market lead, it knows best.
-continue austerity, starve the public sector of funds.
-have a recession.
Bingo. Growth is achieved during the recovery. But at what cost?
Let us assume that the government and BoE do know exactly what they are doing and what the outcome will be. In which case, may I suggest, we are being prepared for a distinctly unpleasant set of circumstances which will only suit those who now manipulate our country. In my 70 years of life I have never felt so vulnerable.
Thank you and well said, Richard.
I’m younger and agree.
This is why I often say, “If you are able to migrate, please do.”
Is there a place where neoliberalism does not exist or at least is ignored.
“The funds in question will be removed from use in the commercial economy of the country,’ This is money which could be used for the things we need.
The Bullingdon club of Boris’s circle allegedly burnt a £20 note in the face of a homeless man.
This is £100 billion in the face of the nation.
Or have I got it wrong?
Thank you, Ian.
I heard it was £50, but that’s not the point.
It’s easy to associate the “Buller” with Johnson, but there are many more around, quietly so, and just as dangerous. I have come across one in the City. I have come across another, a contemporary of, but no longer friends with, Johnson, Poland’s neo con foreign minister Radek Sikorski.
The older I get the more I realise that the people in charge are not up to the job. I gather from the news this morning that consumer confidence has fallen. Odd that – who would have thought that the Government saying how bad things are and that taxes will go up and spending will go down – would make people feel less confident and happy! A bit like the politicians who said “If we don’t cut spending, the economy will suffer” in the early days of the coalition. And then were surprised when confidence fell and the economy well suffered and that was before austerity kicked in!
Since the onset of the pandemic restrictions, I think that we have ended up in what might be called “The Anxiety Economy”. I see this frequently with clients, old and new, who are seeking some kind of ill-defined “security” in their lives. There can be all sorts of reasons for this. Large numbers of UK citizens are looking at a precarious ‘retirement’ as far as their income is concerned. My children suffer from the big problems with housing and unaffordable rents and the inability to save for a deposit as the ‘boomers’ have ramped up property prices to their offspring’s detriment. Perhaps a radical housing policy will come about? I moved, age 5, into a brand-new council house in 1968 in a small town in Devon, that had miraculous things like central heating and an indoor bathroom! Now it’s all ‘private landlords’ gouging money off other people’s sweat, renting out properties that simply should be demolished. It’s not beyond the wit of man to solve this problem, in short order, if the will to do so is there.
I know lots of now elderly people who have far too much money (which is another source of anxiety) but are psychologically unprepared to gift this down the generations, preferring cold hand to warm. I meet other elderly people who are ‘rich’ because they have enough money – sufficient to live a modest lifestyle in they way they want and are able to see that income streams are what is important, not masses of capital. They are the happy ones, not those with mountains of paper wealth.
Much to agree with
Hello!
Could you explain , in a domestic way, this paragraph? Please. Thanks very much
Sorry, but I am not sure what that means.
I focussed too much on the rate freeze side of the announcement and failed to register this £100bn death-knell.
The only economic answer is they really do want to send the UK into recession whilst paying high coupons to the banks.
Agreed
@ Bay Tampa Bay
Thank you.
Yes. Keynesian Mauritius. Lots of Americans there, too.
Not even the Mauritian oligarchs, mainly the descendants of Europeans, bother with neoliberalism.
A thought provoking piece and comments!
Others (above) have said that they do know exactly what they are doing. Assuming that is true, I have to ask, “why are they doing this”? It seems unbelievable!
What could their plan be? I have no idea. It could be something Machiavellian, but what if it is very simple? They have made a lot of the mess that the Tories have made of everything and will continue to do so. So, perhaps they think that by ensuring there is real pain now (which they will continue to protest is the Tories fault), they plan to reflate the economy in about 18 – 24 months, so that the growth then can be claimed by them as entirely due to Labour policies. They’ve then, in their eyes, shown they can manage the economy. They then think it gives them a better chance of winning the next election.
The alternative is that the top of town truly are now calling the shots, and the STP will just continue to milk us all dry. But, in my view, that will now just benefit Reform – then – heaven help us all.
“Do any of these people have a clue what they are doing, let alone talking about?”
Well let’s see
1.Starmer Reeves Streeting and probably every Laboutr MP wants more than one 5yr term in office
2. The entire cabinet appear to have no reason to be in politics at all
I have never heard one of them set out a vision for how they will make life better for the majority of people in UK.
Therefore I feel it’s safe to assume other than self preferment fame and a retirement of corporate wealth there is no reason for them to be there at all.
3. They have no wish to improve things they don’t think that life for most people in the country is that bad
4. I have never heard one member of the cabinet mention inequality therfore i do not believe they think it matters
5. I have never heard a member of the cabinet say the words neoliberalism
I don’t think they understand the concept or function of neoliberalism.
So my conclusion is they truly believe there is no alternative they truly believe in managerialism in government with no desirable goals.
They truly believe in the household budget version of macroeconomics.
They are utter fools with no grasp of reality or the potential of big government.
I would love them all to read Richards book “the courageous state” and then tell us why they can’t do anything at all ever.
Thanks, Pat.
I agree, not one of them seems to have a vision.
Visionless but performative about sums up the current Labour Party!
A glimmer of hope on BBC Question Time (19 Sep 2024). Text credit to @Farrukh:
Man in Hawaiian top, “Is the removal of the winter fuel allowance the beginning of austerity 2.0?” #BBCQT
Mariana Mazzucato, “If this is being done to reduuce the £20 billion black hole that the Labour government inherited.. A lot of that was about incompetence.. It wasn’t spent on infrastructure”
“Coming in saying we need to reduce that hole, my view is that that hole only becomes bigger. Why?”
“Because the cost of inaction is greater than the cost of action”
“If you’re cutting WFA, that makes people not receiving it, if they end up sick, and in hospital, there’s a cost”
“Any sort of modeling has to take a long run view”
“Almost every time there is a cut, it looks like a saving, but in so many instances we see that ends up costing the economy much more, because of what it does to the social fabric and the health and well being of people”
Fiona Bruce, “Presumably you’ve got to find the money up front to do that?”
Mariana Mazzucato, “No, governments aren’t households. Governments always create money”
“If you spend on anything that expands the productive capacity of the economy, and health and wellbeing of people, ultimately that will also increase productivity, growth”
Source: https://x.com/implausibleblog/status/1836881130697474365
Full programme: https://www.bbc.co.uk/programmes/m00232nk
It was a good try
It seems to me that Keynes maxim “anything we can actually do, we can afford” has never been more apt, or more ignored. Except that Reeves had the nerve to mis-quote it in reverse. Maybe she really does believe we have to somehow “find” the money first; if so she has no business being in the job
Agreed